The Ledger Domain

The Effect of Regional Sports Networks

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To that end, one of the single biggest influences over television has been the increased growth in regional sports networks, or RSNs. Every club is now broadcasted on an RSN, with some clubs being partial owners of them. Doing some research, here's a list of some RSNs that are controlled, or partly controlled, by MLB clubs:

With the advent of the RSN, the questions are, 1) are they profitable? and, 2) are they considered to be part of the revenue-sharing equation? The answer is yes to # 1 and no to #2.

With that in mind, there have been echoes of MLB clubs using what is called "transfer pricing" to help shield baseball-related revenues in controlled RSNs to keep them out of scope of the revenue-sharing process. As an article from CFO.com outlines, such accusations raise the ire of MLB executives. As the article points out, "under the current CBA rules, PricewaterhouseCoopers performs a separate revenue-sharing audit on every team based on 'aggressive' rules defined by a committee of owners and other staff, and reviewed by the players' association."

The article also mentions that shielding revenues does occur.

"Ask baseball CFOs about related-party transactions and see if they don't turn pale," suggests Ray Schaetzle, former executive vice president of finance of the New Jersey Nets, which merged with the Yankees to form the YankeesNets organization.

"When you have related-party transactions, you have a lot of opportunity to reduce costs through economies of scale-or to hide things and make the franchises look less profitable than they are," explains Schaetzle.

Which brings us back to the RSNs and their financial states. With data obtained from the Sports Business Journal, we can see the following:

Ratings for 10 of the top-rated RSNs declined or were flat last year, but in the overall context of the industry, this is not seen as a concern. Eight of those ten declines have seen overall ratings increases since 2003. With ad deals normally being structured in three-to-five-year increments, a dip this year hasn't raised the concerns of most in the RSN business, as outlined by the overall health of ratings in comparison to a three-year span of time.

There were some increases, most notably FSN Detroit, which saw a 92 percent increase in average households from the year prior due to the Tigers' Cinderella run to the World Series, and an 87.20 percent increase at SportsNet New York due to the Mets.

Overall, the data shows two things. It shows that revenues from RSNs have been up for the period leading up to the CBA. When that fact was tied to other revenue streams, it set up an environment where free spending in the off-season was ripe for an increase.

While the data shows increases over the past several years in ratings and the total number of total households with access to RSNs, the numbers in decline from last season may be a trend, rather than an anomaly. One might suggest that the steep decline in NESN viewership last season was due to the lackluster finish to the season. With the aggressive off-season activity by the Red Sox and the addition of Daisuke Matsuzaka, interest will be increased at the early part of the season, and then depending on the performance of the team over the course of the season, those numbers will fluctuate accordingly.

Lastly, there will be ebbs and flows in the RSN game. As an example, starting in 2008, the Kansas City Royals will increase the number of games seen on television to 140 in total. That's due to a deal with Fox Sports Midwest. It will also mark the end of Royals Sports Television Network (RSTN), the Royals attempt at a regional sports network. RSTN is expected to televise 114 games, including 14 over-the-air games, in 2007. As for additional RSNs, the Angels came very close last year to creating one before inking a deal with FSN West, and other clubs will surely investigate whether controlling an RSN is beneficial to them.

Maury Brown is an author of Baseball Prospectus. Click here to see Maury's other articles.
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